A good friend of mine emailed me the other day to say that she is “so sick of listening to business owners whine about Obamacare.” So this blog is for her.
She was referring to the news that restaurants like Papa Johns, Applebee’s, and the parent company of Red Lobster and Olive Garden announced they would cut employee hours, close restaurants, lay off employees, and stop hiring new employees because the Affordable Care Act (ACA) requires that companies with 50 or more employees provide health insurance.
A bit of background: Beginning in 2014, the ACA (and, for the record, I find the word “Obamacare” derogatory to one of the most important legislative acts since Medicare) requires that nearly all Americans have health insurance. Low- and moderate-income Americans will either receive coverage through Medicaid or receive government subsidies to buy health insurance through virtual marketplaces called health insurance exchanges, or to help cover the cost of employer-provided insurance. (Don’t worry, I’ll blog about those exchanges in a future post).
But the majority of health insurance in this country is provided by employers, so the ACA contains contingencies to ensure those companies don’t suddenly drop health insurance as a benefit. Businesses with 50 or more employees who don’t provide insurance for employees working more than 30 hours a week have to pay a $2,000/head penalty (the wonderful graphic below from the Kaiser Family Foundation shows you how that works).
One way to avoid those penalties? Cut employee hours so they not only don’t make enough to support their families, but so you don’t have to provide health insurance. We call this the “Walmart Way.”
Here’s what the head of Applebee’s told Fox News: “We’ve calculated it will (cost) some millions of dollars across our system. So what does that say – that says we won’t build more restaurants. We won’t hire more people. If you have 40 or 50 employees at a restaurant, and the penalty is $2,000, and you’re going to pay $80,000 or $100,000 penalty, there goes the profit in your restaurant. I want to simply say we are looking at it, we are evaluating. If it’s possible to do without cutting people back, I am delighted to do it, but that also rolls back expansion, it rolls back hiring more people, and in a best-case scenario, we only shrink the labor force minimally. Best case.”
Fortune magazine blogger Caleb Melby figured out the actual “cost” Papa John’s CEOs is whining about into perspective. His conclusion? About 4 additional cents per pizza. Plus, even a cost of $8 million a year shaves only 2.5 percent from the $325.7 million in gross profits the firm reported in 2011.
I don’t know about you, but I have no problem paying 4 extra cents for a pizza. I doubt it will send customers fleeing. What will send customers fleeing is the bad service they’ll get from fewer, surlier employees who are tired of being treated as expendable by corporate America. Meanwhile, the good employees will take their talents to companies that value them.
All this could be avoided, of course, if we had a single-payer system that we all supported, just as we all support Medicare. But that’s a topic for another blog.
And, for the record, Time magazine reports that in parts of the country like San Francisco, Hawaii, and Massachusetts where similar requirements are in place, companies (including restaurants) report little-to-no additional cost while coverage for those who were uninsured has soared.
Put that in your pizza and eat it.